We have previously written about Shareholder’s Agreementsand what they are. A Shareholder’s Agreement is certainly very important as it deals what each shareholder brings to the table, and more importantly, what happens when there is a disagreement or if a shareholder wants to exit the business. Not having a Shareholder’s Agreement will likely make the exit process more difficult. However what a Shareholder’s Agreement cannot do is to determine how the company is run, who has the day to day responsibilities, who the directors are, and the conduct of board meetings. These are all matters dictated by the Company Constitution.
The Constitution has the effect of an agreement between the company, its members, its directors, and its secretary. A company adopts a Constitution on registration or after registration. If no particular Constitution has been adopted after registration, a default set of rules called the Replacable Rules. These rules are found in the Corporations Act and they deal with a number of topics including:
- Company Officers and Employees
- Meetings of Directors
- Powers of Directors
- Voting, Resolutions, and Quorums.
- Meetings of Members
- Transmissions of Shares on Death or Bankrupcy
A Company can replace some of the Replacable Rules with its own rules or adopt its own Constitution so long as a special resolution has been passed by its Shareholders. If a member is not satisfied with the way the company is being run, and if the company is being run in contravention of its own Constitution, they may be able to bring legal action against the offending member.
A well-run business involving more than one partner should always have both a Shareholder’s Agreement and a Company Constitution.
Why choose Phang Legal for your business?
There are many lawyers and law firms to choose from, but it can be challenging to make the right choice. At Phang Legal we are dedicated to serving other business in the best way possible – after all, we know what it is to run business and to be a consumer of professional services ourselves. We appreciate the value of professional advisers who can provide the right service at the right price and we aim to be what we expect most. We deliver nothing less and we think you should expect nothing less.
With our offices conveniently located in Parramatta, the geographic centre of the Sydney metropolitan area, our lawyers assist businesses from across all suburbs of Sydney and beyond.
Associate Solicitor – Sydney